2011 Tax Changes: Health Insurance & Deductible Medical Expenses

There are a few changes regarding health insurance and medical expenses for 2011. These include:

IRS further delays health insurance coverage information reporting for small employers.
The new health reform legislation generally requires employers to report the cost of health
insurance they provide to employees on their W-2 forms. Last fall, the IRS made this new
reporting requirement optional for all employers for the 2011 Forms W-2. More recently, the IRS
announced that the reporting requirement will continue to be voluntary for small employers at
least through 2012.

Lactation expenses now qualify as deductible medical expenses. Reversing its prior position, the
IRS has announced that expenses paid for breast pumps and supplies that assist lactation qualify
as deductible medical expenses. Amounts reimbursed for these expenses under FSAs (flexible
spending accounts), Archer MSAs (medical savings accounts), HRAs (health reimbursement
arrangements), or HSAs (health savings accounts) are accordingly not income to the taxpayer.

Physician statement alone doesn’t establish financial disability to toll limitations period. In
general, a taxpayer must file a claim for credit or refund of tax within three years after filing the
return or two years after paying the tax, whichever period expires later. However, the statute of limitations is suspended for certain taxpayers who are unable to manage their financial affairs because of a medically determinable mental or physical impairment. A physician’s statement must be submitted to claim this relief, but a Court has made clear that the
statement alone doesn’t establish that the taxpayer was financially disabled. Thus, it allowed the
IRS to seek additional proof of the taxpayer’s condition.

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